2004 (10) TMI 438 - AT - Central Excise

Summary

Issues:
1. Interpretation of Rule 96E regarding the removal of cotton yarn for job work.
2. Application of duty on hank yarn removed without following the specified procedure.
3. Exemption of hank yarn from duty under Notification 6/2000.
4. Imposition of penalty for non-compliance with rules.

Interpretation of Rule 96E:
The case involved the appellants manufacturing cotton yarn under Chapter Heading 52.03 seeking permission to remove cotton yarn for job work under Rule 96E. The central excise department contended that the hank yarn should have been brought back to the factory before being sent to the depot, resulting in a demand for excise duty. The Commissioner upheld this view, emphasizing the procedural requirements under Rule 96E for the removal of goods from one factory to another without payment of duty. However, the Tribunal noted that there was no explicit provision in Rule 96E mandating the return of yarn to the factory. Despite this, the Commissioner's interpretation was based on the failure to follow the proper procedure.

Application of Duty on Hank Yarn:
The Commissioner held that duty was demandable on the cotton yarn removed for conversion into hank yarn due to non-compliance with the specified procedure. The appellants argued that the hank yarn was fully exempted from duty under Notification 6/2000. The Tribunal agreed with the appellants, stating that the exemption of hank yarn from duty meant that duty could not be imposed simply because the procedural requirements were not followed. The Tribunal emphasized that exempted goods cannot be subjected to duty based on procedural lapses.

Exemption of Hank Yarn from Duty:
The Tribunal highlighted that hank yarn was fully exempt from duty under Notification 6/2000 dated 1-3-2000. Despite the failure to bring back the hank yarn to the factory as per the rules, the Tribunal clarified that exempted goods cannot be taxed merely due to non-compliance with procedural rules. The Tribunal rejected the department's argument that duty could be imposed on exempted goods due to procedural violations.

Imposition of Penalty for Non-Compliance:
The Tribunal addressed the possibility of imposing a penalty for non-compliance with rules, noting that the appellants had informed the department and obtained permission for the removal of hank yarn to their depots. In such a scenario, the Tribunal held that no penalty could be imposed as the actions were taken with the department's approval. The Tribunal concluded by allowing the appeals, setting aside the lower appellate authority's order demanding duty and imposing a penalty.